Illinois citizens have been reading about the state’s dire economic situation. Our legislators appear to believe they can cut their way through our states’ economic morass. They have cut the safety net from under our most vulnerable citizens — the poor, the sick, and the mentally and physically disabled — and are in the process of cutting pension benefits of teachers and state workers. There are, however, other steps legislators could take which would relieve and possibly solve our state’s economic woes.
To begin with, citizens must recognize and acknowledge the awful truth: that the state’s financial difficulties stem from a lack of revenues, not from overspending. Illinois ranks only 43rd in state spending as a percentage of GDP among the states (2008 data). More than $9 out of every $10 is spent by the state in just four areas: education (35%), health care (30%), human services (21%) and public safety (5%). It is simply not possible to cut our way to a solution.
Here is a list of four proposed solutions to Illinois’ economic problems:
1) a progressive income tax
2) a tax on services
3) a tax on pensions
4) an end to State corporate income tax giveaways.
According to the Center for Tax and Budget Accountability (CTBA), a progressive income tax would cut the overall state income tax for 94% of all taxpayers and raise at least $2.4 billion annually in new revenue.
Forty-nine of 50 states tax services: Wisconsin, 76; Ohio, 68; Michigan, 26. Illinois taxes 17 services (FTA Survey of Services Taxation – July 2007).
Illinois’ economy, like that of many other states, has largely become a services- and information-based economy.
“In 2010, [Illinois] consumers spent twice as much on services as on goods. This shift in the fundamentals of the economy has changed the relationship between consumption and tax revenue. … Changes in personal consumption have resulted in the Illinois sales tax covering a decreasing proportion of consumption expenditures. …”(Chicago Metropolitan Agency for Planning – CMAP)
Illinois is one of only four states that completely exempts pensions, annuities and Social Security benefits from a broad-based income tax. In fiscal 2009, the Illinois Office of the Comptroller estimated that this single category of income tax exemptions cost the state almost $1 billion, making this the state’s largest income-tax break.
Corporations have been engaging in a feeding frenzy which is destroying Illinois’ financial viability. They claim that they need tax breaks to relieve them from the state’s onerous 9.5% business income tax. While the tax exists, it is a myth that corporations actually pay that rate. For the most recent six years, 22 large Illinois corporations with pretax incomes of $5 billion had an average effective tax rate of 1.9%. During the past 12 years, the effective tax rate of Exelon was 4.45% (the highest) and Allstate 0.00% (the lowest).
The successful evasion of most corporate tax obligations is one of the reasons why Illinois is in such dire economic straits.
Al Popowits is a River Forest resident.
